West Coast Franchise Fiasco

[NickFitz]

Ministers have scrapped the decision to award the West Coast Main Line rail franchise to FirstGroup saying the bidding process was flawed.

The contract - awarded in August - was immediately challenged in the courts by Virgin Trains, which lost out.

Ministers say there were "significant technical flaws" in the way the risks for each bid were calculated and say the bidding process must be rerun.

- BBC News - West Coast Main Line deal ditched

Useless twonks


EDIT: here's the DfT press release, which seems to have been published in the middle of the night: http://www.dft.gov.uk/news/press-rel...ress-20121003a

[centurian]

Reading between the lines, this is what I suspect has happened.

First determined they could suggest an "innovative" payment structure which meant they paid very little in the early years of the contract - and grows exponentially, so that in the last 3 years they were paying tulip loads. The NPV of all the years combined was much more than Virgin had bid.

The problem is that the penalty clause was based upon the average yearly cost, so in the last 3 years, they could just walk away from the contract and pay considerably less in penalties than they would in the yearly fees. Factor this in, and the NPV would be less than Virgin had bid.

So either
a) The twunts at the DoT were so incompetant that they couldn't see this was First's strategy
b) They could see it, but they realised they hadn't covered that scenario in the bid rules that they set up. So rather than admit their earlier mistakes and pull the tender early on, they plod on regardless, recommending the minister sign a contract they know is going to blow up in 10 years.

[mudskipper]

Useless twonks

WHS.

[doodab]

I'm not sure getting enough material for a whole new series of yes minister counts as 'getting value for the taxpayer' but it's good to see they are thinking outside the usual constraints.

[centurian]

BBC News - West Coast Main Line deal with FirstGroup scrapped

And it said an announcement would be made about the suspension of staff while investigations were carried out.

Plenty good enough - incompetant f-wits

Of course, this will mean a compensation bill to the government, running into tens of millions, compensating all bidders for the cost of making their bids - since the failings were the fault of the DoT - Virgin alone said their cost of bidding was 15m

[eek]

b) They could see it, but they realised they hadn't covered that scenario in the bid rules that they set up. So rather than admit their earlier mistakes and pull the tender early on, they plod on regardless, recommending the minister sign a contract they know is going to blow up in 10 years.

It looks like b but they are claiming its due to the models not taking into account increases in customer numbers and general inflation.

Which to be honest means b and that First Group know how to game the system correctly.

[mrdonuts]

"Mr McLoughlin added that members of staff at the Department for Transport (DfT) will be suspended over the flaws."

does that mean sent on paid holiday for few months whilst everyone forgets

[sasguru]

The privatisation of the UK railways is a good example of free market failure : a succession of monopolies, probably price fixing, profit without any risk, consumer always gets shafted.

[DodgyAgent]

The privatisation of the UK railways is a good example of free market failure : a succession of monopolies, probably price fixing, profit without any risk, consumer always gets shafted.

and what would they have been like if they had still been run by the public sector?

[sasguru]

and what would they have been like if they had still been run by the public sector?

Cheaper? I don't recall the railways being any worse under British Rail.